India 2022: High on skills but low on jobs?

If you plan to seek an exciting career in 'rag chopping' with the paper industry, the government has plans to sharpen your skills. After 60 hours of training and paying a princely sum of Rs 500 for a test, you get a certificate to hang on your wall. Or you could try becoming a 'cow boy' (with 80 hours of skill-building) or an 'egg selling assistant' (100 hours).

These are random picks from a raft of 1,436 courses that the government thinks will be needed as the Indian economy powers ahead. After expending its first term in office presiding over jobless growth, the UPA is now in overdrive on a skill-building mission without asking itself a basic question: Where will the jobs come from even if talented rag-choppers and egg selling assistants emerge from the woodwork of these modules of the Skill Development Initiative?

All these ideas are end-products of a National Skill Development Policy (NSDP) articulated in 2009 and the subject is priority for the UPA because it believes it has political potential as well as beneficial effects on economic growth.

India's GDP growth has slipped below 5 per cent. It was once touted to be the second fastest-growing economy in the world.

The logic is simple: More working people means more savings which, in turn, means more money for investments. As the number of working people grows, it also reduces the dependency ratio, which is the proportion of non-working population to the working. India's GDP growth has slipped below 5 per cent as slowing investments, sluggish industry, stubborn inflation and worsening public finances weigh on the economy once touted to be the second fastest-growing in the world.

"The rapid growth of the Indian economy since 2004 has clearly brought out the shortcomings of our skills development processes," Prime Minister Manmohan Singh told a labour conference in February 2012. "Today, availability of skills is possibly the single most important constraint to rapid industrial growth," he had said. But in India, political speeches are often far from reality. And, in any case, skills are a necessary condition for improving incomes and being fit for a job. They don't create jobs by themselves.

Or do they? At least at the level of government, both central and states, plenty of under-productive committees and jobs are being created. At last count, there were about 20 different agencies, including ministries, departments and a company at the federal level, directly running skill development projects. Nobody in the government even knows how much money is being spent on skill development-that is, outside the regular education system.

Early results are underwhelming: Central government entities could collectively train only 45 lakh people in the past year despite spending crores (100 crores make a billion). The prime minister's advisor on skill development S Ramadorai had admitted in a media interview in March that this year's target would also not be met.

Consider how the system works. On May 25, a group of armed Maoist rebels attacked a convoy of politicians, killing many Congress leaders in Chhattisgarh, including former Union cabinet minister VC Shukla. Two weeks later, the rural development ministry at the Centre announced a new skill development scheme called Roshni (meaning light, whose counterpart in Kashmir has had some moderate impact) to provide skills and give jobs to 50,000 rural youth from 24 critical districts where left-wing extremism is rampant.

Problem solved? Superb testimony to how efficiently the government deals with the country's most pressing problems?

Neither. The reactionary nature of the government's response to the hydra-headed challenge of creating meaningful and remunerative jobs shows how arbitrarily it can spend taxpayers' money on programmes intended to prove that politicians are on the job solving your problems. But they forgot one thing: There may be no jobs requiring the skills that may be imparted.

The Roshni scheme appears to presume that once youth are trained, they would find occupations that will keep them away from being radicalised. True, training improves their chances of landing a job. But the government does not seem to know that in places like Chhattisgarh there are hardly any jobs available locally and the youth may be reluctant to migrate to the tough life of strange cities where there may be a real shortage of skilled people in many industries; the ministry has already had that enlightening experience with the Himayat scheme in Kashmir.

This is a world of partially make-believe solutions to the real problem of matching available jobs to the required skill sets. In the government's scheme of things, solutions have to come from the top, with committees and bureaucrats and ministers beavering away to harvest the 'demographic dividend' by giving youth employment skills.

Consider this solution that has been 'found' without identifying the problem. We have to make 500 million youths job-ready by 2022 by imparting skills. Who decided the number of 500 million? It seems late management guru CK Prahalad, who was a member of the National Council on Skill Development, had suggested that there may be that many people looking for jobs.

But that has not stopped the government-both at the Centre and states-from pouring taxpayers' money like water on setting up committees, skill development bodies and what-have-you.

"The government is organised vertically while skills is a horizontal problem," says Manish Sabharwal, a member of the PM's council on skill development and chairman of TeamLease, India's first temping services provider. "In the current structure every Ayatollah in every ministry has an antibiotic reaction to anything inter-ministerial," he says. What he means is that each ministry is essentially doing its own thing on skill-building, driven by the basic bureaucratic goal of turf protection.

To be sure, it's not as if India's youth are inherently employable. Skills are indeed needed. A September 2012 Ernst and Young report for Ficci estimates that only 10 per cent of India's workforce receives some kind of training and 80 per cent of entrants into the pool do not have the opportunity for training. Many of those trained are hardly employable though they may have certificates. The difficulty in filling up jobs in India in 2012 was 48 per cent when the global standard was 34 percent.

According to another person on the prime minister's council, among those who are trained, a significant number is unable to find jobs or is dropping out because of low pay, poor working conditions, lack of jobs near home and even 'low status' of available jobs in society.

The top 10 high growth industries, such as retail, auto, construction and IT, are expected to require about 245 million people by 2022 (including current incumbents) if India manages an average annual GDP growth rate of near 8 percent. That, of course, is a pipedream, since we are currently plodding along at 5 per cent. The government hopes to make 500 million Indians job-ready by then. For the 12th Plan that began last year, the target is 50 million. This year, it hopes to train 80 million people.

None of the skilling targets are likely to be met; not because of lack of intent but because there are too many cooks stirring the pot and each is fiercely turf-possessive.

Restructuring the institution

In May, the Union cabinet decided to set up a single entity to streamline and co-ordinate federal and state-level skill development programmes.

A June 6 notification replaced the NSDCB, the PM's National Council for Skill Development, and the Office of the Advisor to the PM on Skill Development with the National Skill Development Agency (NSDA).

It will be housed in the finance ministry and be headed by S Ramadorai who was advisor to the Prime Minister's National Council on Skill Development and is vice chairman of Tata Consultancy Services (TCS), India's biggest software services company and the world's second largest employer in the IT services industry with about 2,64,000 people on its payroll as on April 1.

The new dispensation-of having a single entity coordinating, overseeing and monitoring all skill development programmes in the country, state-run as well as in the private sector-looks sensible on paper but the wrangling that went on behind the scenes suggests that it would be anything but effective.

The original idea was to create a more powerful institution. "We had modelled it exactly on the lines of the UIDAI of [Nandan] Nilekani," says a person involved with the process. An authority has executive powers and usually gets budgetary support. It was supposed to be attached to the Planning Commission and entrusted with an 18-point charter. The mandate included creating financing mechanisms, governance models and certification standards for trainees and trainers as well as coordinating operations of various project managers and regulators such as the National Council for Vocational Training, All India Council for Technical Education and Sector Skill Councils.

When the note was first placed for discussion in the Cabinet, several ministers opposed it. In the inter-ministerial consultations that followed, every ministry recorded its reservation. The most number of objections was raised by the Finance Ministry. It said there was no parallel with the UIDAI (Unique Identity Authority of India) because the latter was created for a specific task. (Never mind that the UIDAI still does not have legislative sanction.) "The NSDA wishes to take unto itself the authority to examine skill development programmes of all the ministries and bring to the approval of the Cabinet sub-committee," the Finance Ministry noted.

"The structure of NSDA is like a ministry without a secretary and will not be accountable to Parliament," protested the Labour Ministry.

The Human Resource Development (HRD) Ministry said the NSDA would only add "another layer without adding any value".

The proposal was then referred to a group of ministers headed by finance minister P Chidambaram. "At the first meeting, all of us argued. At the second, we agreed," says one minister.

In between the two meetings, the original proposal went through a thorough dilution-authority was replaced by agency and the freedom of line ministries was retained irrespective of the risk of duplication. Though the agency is expected to co-ordinate and examine all schemes and has the mandate to rationalise and harmonise them, it will take a lot of cajoling to move the bureaucratic machinery in each ministry.

In short, we cannot expect all hands on board for achieving a common objective.

Last year, the ministries of HRD and Labour had gotten into a turf war when both competed to control vocational training in the country. Each developed an assessment and certification framework claiming domain control.

TeamLease chairman Manish Sabharwal called it "two planes trying to take off from the same runway at the same time". Finally, the PMO had to intervene and the issue was put in cold storage.

Former labour minister Mallikarjun Kharge (who has since taken over the Railways Ministry) says all issues have been sorted out and now the best proposals from both the documents have been merged and the NSDA would draw from them when evolving the National Skill Qualifications Framework. "There was not a tussle but some differences in perceptions. We have amicably resolved it already," Kharge told Forbes India in an interview.

The June 6 notification says the agency will be autonomous and raise extra-budgetary resources from international agencies and the private sector. It may help that it is now housed in the finance ministry instead of the Planning Commission, as proposed earlier, or in the Cabinet Secretariat, as suggested in the inter-ministerial debates.

Reality check

To begin with, the target of making 500 million youths job-ready by 2022 is questionable. The Institute of Applied Manpower Research of India (IAMR) of the Planning Commission says there are a number of concerns with the target. "First, there is no definition of 'skill' that underlies this estimate," it says in a recent paper.

Second, it seriously overestimates the number of those who are to be skilled in the non-agricultural workforce based on the assumption that a majority of agricultural workers will move out of farming. IAMR says the expectation is misplaced. It estimates the number to be closer to 250 million. There is also no data on how many in the current workforce are already trained; the only estimate is that of the annual flow of training capacity (of the 17 ministries and private players).

A senior official in the PM's Council says that when CK Prahalad (who was on the NSDCB until he passed away in 2010) articulated 500 million as the number of people who would need training, he was merely saying that would be the workforce or number of people who would be available and perhaps searching for jobs in 2022. "Prahalad never said that there will be that many jobs," he said.

What that rather 'unscientific' estimate, as IAMR calls it, did was skew skill development planning in the country. Based on that number, an allocation was made in the National Skill Development Policy 2009 (endorsed by the National Council on Skill Development) to various agencies and ministries of the targets they were required to plan to train between the 11th and the end of the 13th Plan. "However, if the actual requirements are only just over half of the 500 million originally required to be trained, it requires a whole new strategy," it says.

A plethora of strategies

The government has put taxpayers' money where its mouth is. It set up the National Skill Development Corporation funded by the National Skill Development Fund with an initial corpus of Rs 1,000 crore and beefed it up with another Rs 658 crore in Budget 2010-11. Union Budget 2012-13 added another Rs 1,000 crore to the kitty and also promised the entire funding for the Himayat programme to train one lakh Kashmiri youth in five years.

This year, Finance Minister P Chidamabram went all out: "My budget for 2013-14 has before it one overarching goal: To create opportunities for our youth to acquire education and skills that will get them decent jobs or self-employment."

He promised funds from the National Rural Livelihood Mission and the National Urban Livelihood Mission to be spent on skill development. He allowed using 5 per cent of the Border Area Development Programme Fund, 10 per cent of the Special Central Assistance to the Scheduled Caste Sub-Plan, the Tribal Sub-Plan and some other funds for training. He also set aside Rs 1,000 crore to be distributed as reward to every young person who passed a post-training certification test. Each candidate would get Rs 10,000.

That is money specifically allocated in the Union Budget. Ministries also use money from their budgets to run projects. At the insistence of the Centre, all states have now set up State Skill Development Missions (SSDMs). Clearly, the problem is not with intent or funds but the method of implementation.

"To achieve the impossible trinity of cost, quality and scale, India needs to address three traffic jams," says Sabharwal of TeamLease. "[Jams] between the Centre and the states, delivery and finance, the two human capital ministries and the rest." Sabharwal believes unless legislative and executive solutions are found to these jams, India's demographic dividend will be under stress. "The life form that is needed is 1/3rd a college that gives knowledge and a degree, 1/3rd an ITI that gives skills and practical experience, and 1/3rd employment exchange that matches with jobs at the exit gate.''

According to Siddhartha Das, executive director, government services, Ernst & Young, the current set-up does not have any answers to get 500 million people skilled by 2022. "It requires an engine that can drive training." Das, who has advised several Indian states as well as other countries on designing skill development programmes, says implementation at the state level is the problem and the action has to be at that level. "The architecture, the components have to come together and fire synchronously. At the moment they are not," he says.

Says Kharge, "We would need active involvement of states and private sector in particular to achieve this target. We are trying to ensure that not only our policies but also our implementation system remains in tune with the times and delivers quality with scale."

The spearhead: While multiple agencies are involved in skill development, the one specifically given the job and the biggest target of training youths in as many vocations as possible is the NSDC, a company set up under Section 25 of the Companies Act and the majority of which is owned by the private sector.

According to a recent presentation of the NSDC, it has approved 83 skill businesses with a total capacity to train 16 million people annually. It has also approved 18 Sector Skill Councils. Of these, only 38 partners and 10 councils were active as on March 31, 2013. In 2012-13, 4,01,324 people were trained of which 2,16,692 were placed, according to the NSDC.

The numbers do not impress Praveen Chakravarty, CEO, investment banking and equities at Anand Rathi Financial. "The only measure of vocational training is a job," Chakravarty says. On that count NSDC's success is modest. It has a placement record of around 60 per cent.

"The real need for state funding is for poor students to undergo skill training," he says, "not for for-profit private training institutes that can attract private capital anyway but will not be able to build a business if students cannot afford their training."

Chakravarty intimately understands the issues and difficulties in skill development. He used to be advisor to the board of Manipal City and Guilds, has helped a dozen members of Parliament with skill development projects in their constituencies and spent a year at UIDAI as member of the financial inclusion initiative. He is an investor in Speakwell Enterprises, Mumbai's largest spoken English training business.

Chakravarty, who has also advised many investors on putting money in training, says there are a number of private equity funds that are interested in investing in education, specifically pre-school and vocational training. "They are attracted because of market size but do not know how to address two issues-how to scale and how poor people will pay," Chakravarty says.

"We are a country which requires specialised financing solutions."

It is not as if financing solutions are not emerging. Mumbai-based Springboard Financial Services says it is the only company in India that is dedicated to providing student loans for vocational training. It has tied up with nine institutes, including IL&FS Skills, Pratham, IndiaSkills, Pipal Tree and Future Sharp, all of whom guarantee placement to students.

"We will not finance a student if he or she gets government funding or studies in an institute that does not guarantee placement," says Mihir Sheth, founder and CEO of Springboard.

The ministry of rural development is also stressing placements. "Our ministry does not have a credible certification programme so we have gone direct. We insist on 75 percent placement," an official in the ministry told Forbes India. He says the ministry is toying with the idea of raising the bar to 100 percent placement.

"Why do you need graduation for all jobs? Why does an employer insist that a person be 10th pass if the job he or she is going to do is serving tea? Do they check whether the person knows how to serve a guest properly?" asks Dilip Chenoy, CEO of NSDC.

This way doesn't go forward: The government is hoping that the NSDA will solve the problem of multiplicity and duplication in training, assessment and certification as well as act as the single point contact between the Centre and the states. But that is not easy. "It is not politics. Skill development programmes have to be saved from us-bureaucrats," a senior bureaucrat managing one of the programmes admits with disarming candour.

In fact, the root of the problem lies elsewhere. And that is lack of an enabling environment to create jobs. In free markets, demand creates opportunity for enterprise which, in turn, ensures supply. The Economic Survey of 2013 analyses it well in a chapter titled 'Seizing the demographic dividend'.

"The increase in the share of working age population seems to add only a little to growth. Since the increase in working age population is what we call the demographic dividend, the fact that it contributes so little to growth (on average, 0.5 percentage points for India in the 20 years since 1991) may seem a puzzle," the survey says.

It says the increase in the fraction of people working is probably not the main consequence of the demographic dividend; its effects are channeled through the increase in labour productivity.

For that, more productive jobs should be found. But industry is not creating enough. In the five years up to 2005, 60 million jobs were added. In the next five years, jobs in manufacturing actually fell by five million and service sector jobs rose only by 4 million.

The survey blames the regulatory environment and straitjacket laws for restricting industrial expansion, especially of micro, small and medium enterprises. The legal and policy regime encourages firms to stay small instead of growing into larger enterprises and employing more people. About 95 percent of the micro, small and medium enterprise segment remains micro.

Medium size firms constitute just 0.2 per cent. As a group, they are 36 million units employing 81 million people, or 84 per cent of the working population in manufacturing.

To add to that, 85 per cent of all employment in the country is informal. The survey says that among wage employees outside of agriculture, more than three-quarters have no written contract, 70 per cent are not eligible for any paid leave, and 74 percent are not covered by social security benefits. "Along all of these measures of informality, India saw an uptick over time," it says.

Kharge says the government is working on the problem. He says it is considering legislative changes to encourage formal employment and improve contract labour conditions.

One of the best ways to train people is directly on the job. On-the-job training is governed by the Apprentice Act of 1961, an old and complex piece of legislation that has ensured that there are only 3 lakh formal apprentices in the country today.

A senior bureaucrat says the best certificate is the one given by an actual employer. What the country needs is a good certification infrastructure and a system that delivers skilled people to prospective employers.